The Risks Of Investing In Real Estate

10.07.15

Before the great housing market crash of 2008 when the home price index experienced the largest drop in history, housing prices were on the decline starting as early as 2006. People used to be able to buy affordable land, and property could be purchased at low interest rates before then. A person could easily buy a home, live in it for 5 to 10 years, and then easily sell it for a profit. After 2008, this was no longer the case for scores of people who had previously purchased homes for significantly more money than they were suddenly worth. Many people's interest rates went up, and others had trouble securing home loans. This sent many home owners who couldn't afford their mortgage payments into foreclosure, and the once-vibrant housing market sat stale for several years.

The risks of investing in real estate are high. Even if you have loads of capital to invest in land and properties, you still might end up not being able to sell the property to get the return on your investment that you so desire. The ability to "flip" a house, where you purchase one, fix it up in a short amount of time and then re-sell it right away was popular for a long time as an investment, but now it's a much bigger gamble. Houses can be purchased for much cheaper now than they could before 2008, but overall real estate values are still much lower, and fewer people are shopping for new homes. There are many shows on television, especially on the HGTV channel, that will give you all kinds of tips and tricks on how to flip houses, remodel, or sell your home at a profit.

One of the worst risks is when an entire neighborhood goes down in price value. Urban decay is a risk, but not often. If you happen to own a house in an area that's not a real estate hotspot, then you might have trouble selling it. On the other end of the spectrum, real estate is in high demand in other areas. Good suburbs by great schools are among those areas. If you have the money to buy in such an area, then it's not a risk since the area is so desirable. Location, location, location is the cornerstone of real estate. Everyone knows that. Real estate is almost always a solid investment over time as long as the location is good.

Real estate is an investment almost anyone can get into. People who can do some of the remodeling on a "fixer upper" home can save huge money. The options to invest vary widely as well. Even if you only have a small amount of money to invest than you can always find something in your price range. Many people get into the real estate game as well to become landlords to rent the properties they own for prices that are much higher than the mortgages on their houses. So it's solid profit when you think about it that way. Say a landlord owns 6 houses that he rents for $1000 a piece, but the mortgage on each house is only $500 dollars per month. That's a $3000 profit every month just on those houses alone. That's a decent turn on his initial investment.

It's been said in the media lately that more and more people are choosing to rent since they aren't making as much money as their parents did, and they like the fact they can move with greater ease to accommodate a new job if it comes up to them. The concept of living in a home for 30 years, which is the normal time for a mortgage loan is greatly outdated. People like the flexibility that being mobile and not tied down to a house affords them.